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Is car insurance discrimination ruling completely bonkers?

The Court of Justice of the European Union (CJEU) has ruled that from December 2012, insurers will be prevented from charging different premiums on the basis of an insured person’s gender. A partner at a leading commercial law firm called September’s preemptive preliminary opinion “completely bonkers”. Can the same be said about the latest decision?

Coverage of the decision has already been largely negative. As well as involving Europe’s increasingly unpopular and possibly unelected judges, the ruling affects an interest group – insurance companies – with deep pockets and who are capable of sophisticated lobbying. And nobody wants to see their insurance premiums go up, if that is indeed to be the outcome of this ruling, something which is by no means clear. So expect to see plenty of critical articles. The Telegraph website is already sporting an unchallenged article/press release from Esure, including a video interview which begins with an advert for ESure’s “Sheila’s Wheels”.

But what did the court actually say? At 36 paragraphs, the judgment is refreshingly short, and the CJEU has also produced a handy press release. So there is little preventing the public from reading it for themselves.

In summary, the case goes back to Council Directive 2004/113, which implemented the principle of equal treatment between men and women in the access to and supply of goods and services. A directive is a piece of European Union law which tells member states that they have to achieve a certain goal, but leaves the detail of how to go about it to the states, within reason. States have to comply with directives because they agreed to do so when they signed up to the EU Treaty.

The 2004 Directive made clear that it applied to direct as well as indirect discrimination on the basis of gender. This is a legal distinction which is well-known to English lawyers. Direct discrimination means treating someone less favourably than others on the basis of a protected characteristic, such as gender or race. For example, telling an employee that “all women are stupid” would be direct discrimination. Indirect discrimination is when a policy has a disproportionate effect on a protected group, and cannot be justified. For example, requiring that a person had 25 years of experience or more to qualify for a job may be indirect age discrimination. But it may be legitimately justified as the job is complex and needs someone with experience.

Back to insurance. The Directive stated in its preamble, amongst other things:

(18) The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services. In order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits.

But there was a get-out clause:

To avoid a sudden readjustment of the market, the implementation of this rule should apply only to new contracts concluded after the date of transposition of this Directive.

To that end, states were given the option to permit proportionate differences in insurance premiums using sex as a determining factor, as long as they published their data and reviewed the decision on 21 December 2012.

The court held that it was not. The problem was that the get-out clause had no time limit. So states could continue to exempt car insurance from the wider principles of the Directive effectively forever:

given that Directive 2004/113 is silent as to the length of time during which those differences may continue to be applied, Member States which have made use of the option are permitted to allow insurers to apply the unequal treatment without any temporal limitation.

The court went on to discuss, briefly, whether car insurance premiums for men and women were in fact comparable with each other. This is important, as discrimination law requires that people in protected groups (for example, men and women) are treated equally but only in situations where the treatment of those groups can truly be said to be comparable. So, for example, it could never (well, probably never) be discriminatory for men to restricted in accessing maternity services as compared to women.

In this case, the respondent argued that that the cases were not comparable:

The Council expresses its doubts as to whether, in the context of certain branches of private insurance, the respective situations of men and women policyholders may be regarded as comparable, given that, from the point of view of the modus operandi of insurers, in accordance with which risks are placed in categories on the basis of statistics, the levels of insured risk may be different for men and for women.

However, the court’s view was that its hands were tied. The Directive itself clearly considers the situation to be comparable, as it provides a specific exemption for exactly that situation:

Accordingly, Directive 2004/113 is based on the premiss that, for the purposes of applying the principle of equal treatment for men and women, enshrined in Articles 21 and 23 of the Charter, the respective situations of men and women with regard to insurance premiums and benefits contracted by them are comparable.

So, in conclusion:

Such a provision, which enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits, works against the achievement of the objective of equal treatment between men and women, which is the purpose of Directive 2004/113, and is incompatible with Articles 21 and 23 of the Charter.

The outcome therefore is that from 21 December 2012, the exemption for car insurance premiums will end, and they will no longer be able to take gender into account as a means of setting the price.

Bonkers?

So, is the ruling bonkers? From a legal perspective, not very. It is difficult to see how the court could have looked beyond the clear intention of the Directive (directives are, after all, all about intentions) to eventually include insurance premiums in gender equality rules.

One might argue that the Directive itself is bonkers, as it effectively takes away insurers’ rights to carefully calibrate premiums. Or at least it prevents insurers making a broad brush generalisation instead of finer grained and therefore more expensive assessments. It is apparently true that women are safer drivers than men, so why should insurers, which exist to calculate risk and then buy it from the public, not be able to factor this in too? Perhaps. But, as pointed out in the Irish Times, the ruling may in fact make things fairer all round. It should not be forgotten that, fairly unusually, it is young men who are being discriminated against in this market:

Insurers love citing the “boy-racer” factor, but the truth is there has been little transparency when it comes to insurers’ calculations of the “loadings” applied to men’s premiums. The ECJ ruling today means insurers will no longer be able to use gender as an excuse for mining profits from either male drivers or, crucially, from female pensioners.

There could also be effects on the life-insurance sector. Since women live longer then men on average, life insurance premiums have up to now taken that into account, making them cheaper for men. Guardian.co.uk has produced a detailed Q&A on the likely effects, which may be a mixture of good and bad for both sexes.

The decision may ultimately lead to insurers charging more for insurance, as suggested by three different people quoted in a Financial Times article. It may not. It may also lead to greater equality: it certainly should not be assumed that insurers have been acting in the best interests of the public, or women for that matter, up to now. And it is quite possible that the women-are-safer-drivers narrative has been used as an excuse to charge young men, who often have more disposable income, at a significant premium. In the meantime, expect to see a number of critical articles, perhaps even accompanied by unsubtle video adverts for car insurers. Which is a bit bonkers.

Update, 2 March 2011 – The Human Rights in Ireland Blog has an interesting analysis of the decision, particularly in relation to the drafting history of the Directive:

he European Commission (who is charged with initiating legislation within the EU) initially proposed that there should be no discrimination on the basis of gender in relation to insurance premiums and benefits, subject to EU member states having an opt-out for a maximum of six years. However, the Council of the European Union did not agree to this, and allowed an indefinite opt-out for member states. At no stage in the judgment did the CJEU at least consider this issue as relevant to Article 52. It could be argued that unisex premiums and benefits were considered in line with the passage of the Equal Treatment Directive at the time, were not deemed appropriate, and therefore an indefinite opt-out was allowed. I am not necessarily stating that I agree with this argument. However, this should at the least have been considered by the CJEU in deciding whether this was a case where Article 52 of the Charter of Fundamental Rights could have limited the general right to gender equality in this specific area of law.

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12 comments

The more I think about this, the more I think it actually is bonkers. Not unisex premiums in themselves (which I’m perfectly happy to see, and which may help women in the pensions context). It’s the legal reasoning in this ruling that I have problems with.

The Human Rights in Ireland Blog makes a good point. Whatever you think of unisex premiums, the fact is that the Commission proposed compulsory unisex premiums, but that was plainly rejected by the legislature, which wanted this open-ended derogation.

There may be an anti-sexist logic to the ECJ’s decision, but it must also be accepted that the ECJ has here in effect usurped the legislative power of the Council and EP. They made their judgment on the right balance to be struck between moving equality forward here, and taking account of the insurance industry’s concerns; AG Kokott and now the ECJ have a different view, and have in effect replaced the legislature’s view with their own. They both did so partly on the basis of article 21 of the Charter of Fundamental Rights, too – which rather proves the point of those Eurosceptics who I had thought were paranoid about the impact of the Charter. Perhaps they weren’t paranoid after all.

The other thing I don’t understand is on what basis either the AG or the ECJ now think there should be even a moment’s delay in bringing in unisex premiums till the end of 2012. The Directive as it now reads requires, on its face, unisex premiums now. I understand they think delay is needed to make the transition less painful, in the interests of legal certainty etc.; but then, that was precisely the legislature’s policy in article 5.2 of the Directive. It seems to me that limiting the temporal effect of the ruling because of industry’s concern must be just as incompatible with the principle of equal treatment, and with article 21 of the Charter, as (they say) article 5.2 of the Directive was. Yet the ECJ thinks it is permitted by the Charter to delay equal treatment, while the legislature is barred from doing so. Strange. It doesn’t even try to justify this in terms of article 52.1 of the Charter.

I could go on. Neither AG Kokott nor the ECJ take account of articles 51.2 and 52.2 of the Charter. Neither of them deals adequately with the purpose of the Directive as regards insurance, which surely can’t be sensibly identified without reference to recital (19) or article 5.2 – especially when you take account of the legislative history. This never would have been adopted without article 5.2, and the moral of this story for governments is that they cannot agree to any anti-discrimination measures under what’s now article 19 TFEU unless they’re sure any derogations they think are necessary cannot be “severed” from the rest of the Directive. It may act as a brake on further EU sex equality legislation.

I’ve no problem with unisex premiums, but I do think this is an illogical and ill-thought-through ruling, and a clear example of judges grabbing power from member states and elected MEPs.

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Corrupted Mindsays:

I sought to avoid commenting on this judgment but alas the comments (edit trolling) has again drawn me in.

@Stephen I disagree with your view that this judgment “will nourish Little Englanders and the mob!” – The fact remains that most Brits are rather more sophisticated than the media seem to understand (an explanation for the lack of anti-European bombast since the judgment). Also, the average Brit hates insurers perhaps as much if not more than the aliens that are our cousins across the Channel.

@Justiceofthepeace Whose commonsense are we speaking of here? Because I actually think that it is unfair that my wife (of five accidents) by virtue of her gender receives a lower insurance quote than I (of no accidents) because she doesn’t have to subsidise 17-25 year old men (which is in essence what insurers are doing in order to make insurance provision affordable for that particular group).

@FrankCramer Regrettably, despite the recalibration of your views – you are still failing to see the nub of the argument namely that while statistically most accidents may be committed by a particular group of motorists not all of them are committed by that group and for that reason there will be a minority within that group that suffers as a result of the insurers broad brush approach. Insurers may groan but there are far more granular and efficient actuarial measures that can be employed aside from simply gender. (See for example: http://www.dft.gov.uk/pgr/statistics/datatablespublications/accidents/casualtiesgbar/suppletablesfactsheets/youngcardrivers.pdf which breaks down the many weird and wonderful facts that make up a statistically average younger “accident maker”.)

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Saul Jackasays:

A colleague (we are both statisticians) has suggested that “perhaps the sex/gender question could be replaced by the question `how often do you wear a dress?'”

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Saul Jackasays:

I am sure that the ECJ’s ruling is the only reasonable interpretation of the Directive.
I am equally sure that this exposes the idiocy of the Directive.
Some of your commenters make much of the stupidity, laziness and cupidity of insurers and no doubt they know best. Nevertheless, it might be worth considering that actuarial valuations of pension funds (where there is no interest held by insurers) will use exactly the same “risk factors” in their calculations.
It seems to me (I am happy to be told otherwise by those more knowlegeable) that this decision marks the start of the destruction of life insurance and annuities (purchased pensions).
If commenters feel that I am being overdramatic, perhaps I could ask for legal opinions (in the infomal sense) on the legaility and practicality of requiring medical tests to establish levels of testosterone in applicants for car insurance; and genetic testing as to the residual length of telomeres for applicants for life insurance.
Geneder and age may not be quite the most appropriate risk factors but they’re damn close and I don’t think we’d actually want to test for the “real” factors, even if we could identify them accurately.

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Frank Cranmersays:

My earlier one-word reaction was perhaps slightly harsh, but my contention would be that the judgment is based on a category mistake. Insurance is about risk, not gender; and two of the risk factors in relation to motor insurance, for example, are evidently age and sex. Actuarially-speaking, young male drivers have a much greater risk of accidents than do young female ones; and because premiums are based on classes of persons rather than individual risk-assessments they have up to now reflected that. I simply don’t see this as sexual discrimination but merely as a reflection of reality.

No doubt the ECJ’s ruling is good law – the Court has to judge on the facts before it and apply the law in force without taking other considerations into account – but its practical effects are perverse and the Commission should revisit the Directive ith a view to amending it. That said, I won’t hold my breath.

I would not dream of arguing the law in such august company but I would opine that the law as it applies to the proverbial MAN or Woman on the Clapham omnibus must be respected [and obeyed, complied with]. Continuing disregard for the “mob” factor and its understanding of “common sense” is unhealthy for a democratic society. This decision goes against that common sense.

If Asian people were charged more for mortgages, based on actuarial figures, people would find it unacceptable. Governments at the UK level and the EU level have made the policy decision that gender and race are to be treated alike. This is clear from the Equality Act 2010. Logically speaking, then, the EU Directive and the ECJ in this case were spot on.

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Sybransays:

exactly. i’m suprised this has only happened now, if the shoe was on the other foot the feminists and postfeminists would be all over it. you have no say in which demographic you are born in – most boys aren’t ‘boy-racers,’ theres just a higher percentage of reckless drivers in that group than other groups, you shouldn’t be held responsible for what other people in your demographic are doing.

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Stephensays:

This judgement will nourish Little Englanders and the mob!

Insurance companies should be able to attach a risk factor to an individual’s circumstances. Using gender is very broad brush and relies on generalisation. Is not discrimination and prejudice based on generalisation?

Some men, even young men, may be very careful drivers. It should be feasible for the (very clever) actuaries to identify factors associated with this group using historical data. Automated learning algorithms developed by the Artificial Intelligence community are ideal for this purpose. Once identified, young, careful male drivers should be charged accordingly rather than lumped together with boy racers. The judgement may not be so mad at first blush because technology now facilitates rapid and precise taxonomic risk assessmentsto be made. Using gender is crude, simplistic and not very precise. Results of an individual’s risk assessment giving rise to a premium can be accessed by the data subject under section 7 (1) (d) of the Data Protection Act 1998. The data subject may also challenge the accuracy under section 14.

Conversely, there may be some females who are dangerous drivers, particularly in these days of the ladette.

So, in summary, the ruling is not that onerous and it may even eliminate cross subsidisation whereby careful male drivers subsidise the insurance costs of aggressive drivers who, with any luck, will get priced off the roads. Everyone will be safer and better off if this outcome is realised.

Yes, absolutely. It is clear from the Directive that the ECJ could not really have decided any other way. And despite the fact that the ECJ will get a lot of grief over this, it is the legislation which is the problem and not the court’s judgment.

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Disclaimer: This blog is maintained for information purposes only. It is not intended to be a source of legal advice and must not be relied upon as such. Blog posts reflect the views and opinions of their individual authors, not of chambers as a whole.